Card network executives are watching closely to see how their businesses will be affected by the Federal Reserve’s debit rule clarification, they said this week during an investor conference this week.

During appearances at a JPMorgan Chase investor conference this week, executives at Visa and Mastercard said they expect the capabilities of their debit networks will give them an edge amid a more competitive landscape. Meanwhile, Fiserv CEO Frank Bisignano suggested the clarification is a boon for the payment processor, which owns debit networks Star and Accel.

The Federal Reserve last October voted to finalize a proposal clarifying a rule that requires multiple debit networks be available for routing transactions, including online. That clarification, which takes effect July 1, puts the onus on card issuers to enable at least two unaffiliated networks for processing debit transactions in e-commerce settings as well.

The Fed sought to clarify the rule because it said competing networks were too often unavailable for debit routing, despite a 2011 rule that required them to be. 

The clarification tees up more competition in the debit routing space. It was seen as a blow to card network giants Visa and Mastercard, and a boon for smaller debit networks, such as Fiserv’s Star and Accel as well as NYCE, owned by Fidelity National Information Services, better known as FIS.

In light of Brookfield, Wisconsin-based Fiserv owning Star, the third largest debit network, and having large portfolios of both merchant and bank clients, the clarification gives the company a chance to pursue more business, JPMorgan analyst Tien-Tsin Huang suggested to Bisignano Wednesday during the JPMorgan conference in Boston.

“There’s always been this challenge around e-comm and whether you needed a third unaffiliated network, and obviously Reg. II changed that,” Bisignano said, referring to the clarification. “We just think it’s leveling a playing field, creating more opportunity.”

Fiserv was “growing that base both on the issuer and on the merchant side pre-Reg. II and I expect, as we spend more time with our clients, it’s going to get more application,” Bisignano said.

For Visa, the largest U.S. card network, the clarification aligned with the card giant’s expectation, said Jack Forestell, chief product and strategy officer at the San Francisco, California-based company.

Most issuers in the U.S. are already compliant with the rule, and “we’re going to see some more issuers come into compliance in the coming months,” he said Tuesday during the JPMorgan conference.

Merchants making routing decisions consider price as well as risk, success and the quality of the transaction, Forestell said. Visa’s tokenization as well as its authentication and real-time fraud scoring capabilities have benefited the company in the e-commerce space, he argued.  

“We anticipated it, we’re set up for it, we don’t see any near term impacts from it, but obviously we’re going to keep an eye on it and stay very, very close to it,” Forestell said.

As federal regulators pursue an antitrust agenda, Mastercard was ordered last December by the Federal Trade Commission to stop blocking competing debit networks and share customer account data with other networks for the processing of debit transactions.

Come July, “we will be ready, no question,” Mastercard CEO Michael Miebach said at the JPMorgan conference Monday.

As to whether it’s a risk to the company, Miebach said he doesn’t have a crystal ball, but argued the card network company’s focus on cybersecurity gives it a leg up.

Purchase, New York-based Mastercard is “always” investing in the latest technology, which is particularly relevant given that the regulation relates to online transaction safety and security, he said. The company is looking at the situation as an opportunity, he said. “We’ve got to play it and see where it goes,” Miebach said.

By Caitlin Mullen on May 26, 2023
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